As goes Iron Ore, so goes Australia…

The AUD has been weakening consistently this year . This is logical given the drop in iron ore, Australia’s main export product, in Q1 2015. From the FT,

(…) Iron ore, which slumped almost 50 per cent in 2014 because of growing supply glut, have fallen a further 30 per cent in the year to date and has sunk 10 per cent in the past three trading sessions (…)

It seems that the decline is gathering speed. I think the AUD has to fall much further for the reasons outlined in my orignal post. For convenience, I am reproducing the main chart that shows how important iron ore is for the Australian economy…Aussie-exports-by-type-590x560

In a nutshell, Australia’s economy has little to show for apart from commodities.  This is also reflected in the economic complexity index (ECI) where Australia ranks 52 – lower than Greece (47) or Costa Rica (51) and far behind Russia (31), a country which is commonly associated with commodity dependency (and which I have been long since December)…

I find the case that Australia’s economy is a developed one hard to make. Nevertheless, its gdp/capita, measured in USD, is higher than in the US or Europe. The currency has a lot more to fall….

(Disclosure: Long RUB, short AUD)

 

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